This week’s visit to Athens by members of the European Parliament heading the inquiry into the role of the troika during the last few years was somewhat overshadowed by the decision of one of the co-rapporteurs, Austrian conservative Othmar Karas, to criticize SYRIZA leader Alexis Tsipras for his alleged failure to propose alternative ways of tackling the crisis.
“I am not here to evaluate Mr Tsipras, I am here to evaluate the troika,” Karas said on the second day of the team’s visit, following a barrage of questions about his comments. Evaluating the troika is certainly foremost in the mind of the inquiry’s other co-rapporteur, French Socialist Liem Hoang Ngoc.
In an interview with Kathimerini English Edition during his brief stay in Athens, Ngoc explained were he believes the troika went wrong and why it is vital that the MEPs conducting the investigation come up with proposals for improving the way that the European Union, and the eurozone in particular, deals with its economic crises in the future.
Given the amount of discussion and analysis there has been about the eurozone bailouts since 2010, was this inquiry really necessary? Does it offer something more than what’s already out there?
The inquiry was necessary because people have doubts about the actions of the troika. Second of all, the troika has no legal basis in the Treaty of the European Union. The European Commission and the European Central Bank (ECB) have no mandate to act within the troika. So, when the proposals of the troika are made to the member states, they are not being discussed anywhere. This creates a problem of democratic legitimacy. The impression people have in the members states is that their governments are acting with a gun to their heads. If they say “no,” they won’t have financial assistance.
Now that the inquiry has been going for a little while, are you happy with the powers it has or would you like it to have more?
Unfortunately, it is not an inquiry commission, it is just an initiative report because the European People’s Party (EPP) did not want an inquiry commission. However, we agree with the co-rapporteur [Othmar Karas] on the need to democratize the assistance mechanism, to replace the troika with a structure where the European Stability Mechanism is going to become a “European Monetary Fund” with democratic control and for decisions to be taken together by the European Council and European Parliament. Concerning the inquiry dimension of the report, we disagree. EPP is satisfied about the policies proposed by the troika and they say the success depends on the ownership of those policies by the member states. For us, the results of the policies proposed by the troika are negative. They propose the same supply-side policies everywhere and when you look at the special case of the four countries (Greece, Cyprus, Portugal and Ireland), you need four different programs: It cannot only be strong fiscal consolidation, decrease in wages and destroying social protection.
Have the responses to the inquiry’s questionnaires, what you’ve heard when you visited bailout countries and during the hearings, changed your opinion about the way the programs have been designed and executed?
I learned some things in more detail. For instance, I discovered that in Ireland there was a debate between the ECB, the IMF and the Irish government about the solution that was implemented. The ECB was against a bail-in that would involve senior bondholders, whereas the Irish government and the IMF were more in favor of a partial bail-in of senior bondholders. The ECB won but does the ECB have the legitimacy to make such a decision, which has not been discussed anywhere? That’s the problem. The bailout solution that was implemented after this decision led to a strong austerity plan, leaving the Irish people with the impression that they are paying for the banks. Another example is in Portugal. There was a social agreement between employers and unions on the minimum wage but the troika refused this because the position of the IMF was to focus on internal devaluation in Portugal to restore competitiveness. At the same time, measures that are too restrictive have been implemented in Portugal and have hurt the recovery. Today, you can see the debt-to-GDP ratio in Portugal has grown because there is no growth.
Having been to Ireland, Portugal and Cyprus, do you believe Greece is different to the other bailout countries?
You have two sorts of problems in the countries receiving financial assistance. The Irish case is clearly a banking sector crisis, which is being paid for by the taxpayers. In Portugal, Cyprus and Greece, you have the spillover effect of the Greek problem that could maybe have been solved earlier if the ECB had used its bazooka – the OMT [Outright Monetary Transactions] program – earlier. If the European Stability Mechanism had existed at the beginning then there would not have been a spillover effect on Cypriot banks and Portugal in the sense of speculation against Portuguese debt.
During one of the troika’s hearings, European Economic and Monetary Affairs Commissioner Olli Rehn said that debt restructuring at the start of the Greek program would have helped but that it could not be done because of the contagion effect. Do you accept this argument?
I can understand the argument but the main point is the actions of the ECB and whether it could act beyond its mandate. If we had more solidarity at the beginning of the crisis to remove part of the debt and if the ECB had implemented its OMT program at the beginning, there would not have been a spillover effect.
What about the moral hazard argument? If OMT had been applied in the Greek case, what would stop other eurozone members from being reckless with their public finances?
An OMT program does not necessarily mean that the ECB buys a country’s bonds. The OMT program suggests that the ECB may buy bonds if there is speculation against that country.
Another point that Mr Rehn made during the inquiry hearing on January 13 was that political turbulence in Greece and Italy in 2011 and 2012 derailed the programs? Do you agree with this interpretation?
The interpretation of liberals and conservatives is to say that the success of the troika program depends on the degree of ownership in each country. But when there are political problems or social tensions, you cannot have ownership. My interpretation is that the troika has been too dogmatic on the issue of budgetary consolidation. What I discovered during the hearings was that there was disagreement between the IMF and the Commission concerning the necessity to implement strong consolidation. The IMF also preferred internal devaluation, which means reduction of wages. As nobody deliberated these proposals, the technocrats implemented both. The IMF was right concerning budgetary consolidation but with respect to internal devaluation, the IMF underestimated the negative impact it would have as everybody in Europe could implement this policy. So, who wins? Nobody. This is why today the eurozone has such low growth. The eurozone does not use budgetary policy but it implements wage deflation. Today, we are threatened by deflation.
The bailouts were built around limited funding and rapid fiscal adjustment in a short period of time. The main factors behind these features were political, rather than economic. Do you think people in Greece and other bailout countries are paying a price for politics out-muscling economics in the design of these packages?
It is clear that [German Chancellor] Angela Merkel had a political agenda when the Greek crisis began. She had to manage her right wing, which is not in favor of European solidarity. Today, things may change with the grand coalition and Germany may be more open to discuss a new restructuring of debt in Greece, which has been proposed by [IMF Managing Director] Christine Lagarde and the IMF. We’ll see. It is clear that inter-governmental arrangements in the European Council could have a negative impact on the management of the crisis in the four countries. The national agenda cannot be put before European interests. Today, European interests are firstly defended by the European Parliament, where you have a European collective conscience.
The inquiry is probing the troika’s role but ultimately it simply implemented a program that was designed mainly in line with political demands in the core eurozone states. For the inquiry to be effective, doesn’t it also need to question the role of the political, as well as institutional, decision-makers?
We can improve the institutional aspects of the European Union but even if you have more democracy in Europe, the handling of the crisis will depend on human decisions. Then, the Greek problem is that everybody in Europe has fallen in love with TINA (There Is No Alternative) – even the French president has her as a new lover. It’s a problem for all the Socialists in Europe.
Would you like the inquiry to have the ability to call, for instance, Angela Merkel, Wolfgang Schaeuble or Nicolas Sarkozy to explain how they arrived at their decisions?
Our aim is not especially to criticize the member states. The main aim of our report is to say we have two European institutions – the Commission and the ECB – which have acted with no mandate because the troika has no legal basis. We have to create more community methods for when institutions are called upon to act. That is our mandate.